If you are a beginner crypto investor, you are in danger of making dangerous mistakes. But don’t worry — help is on the way. Our new article will help you detect and fix some of the potential shortcomings as a cryptocurrency investor. We highlighted 10 common errors beginners make when investing in crypto and how to fix them.
1. Skipping the Learning Part
Some people invest in crypto because it sounds trendy and fancy. There is nothing wrong with keeping up with advancements, but be aware that you are dealing with a unique asset.
BTC may look similar to USD or EURO at first glance, but it relies on completely different technologies and economics. If you treat crypto the same way you treat centralized currencies, you are putting your investment at risk.
How to Fix It: learn, learn, learn.
Read about the asset before making a decision to buy it. The info is easy to find: the internet — and our own blog — is full of awesome educational content.
It’s best if you start with the basics. Here are guides to get you started:
2. Investing in Ideas
Every good coin has a purpose. It may address an urgent problem or promise important benefits. But don’t buy a coin just because you love the idea behind it.
Finding a cure for cancer is a beautiful idea, but if the team has no medical or scientific background, they are unlikely to succeed. The same rule applies to crypto: a coin may have amazing core values, but it doesn’t mean it will succeed.
How to Fix It: due diligence all the way!
Take your time and research. Focus on industries that you understand. It’s best when you can foresee the challenges the project will have to overcome.
Also, check if the team has any relevant experience and education. If founders show incompetence or lack of understanding — It’s a bad sign.
3. Always Buying Cheap Coins
This one is common among those just starting out. Beginners like to look for hidden gems, but only among cheap coins. The logic is simple: cheap coins are affordable and still have huge growth and profit potential. The lower the price, the higher the returns.
Though miracles do happen, this strategy is faulty. While cheaper coins can grow huge, most of them never rise in price. So, only buying cheap options makes one risky portfolio.
How to Fix It: diversify.
Don’t just buy the cheap stuff! Introduce a few conservative options in your portfolio. Also, when choosing a coin for investing, focus on its utility and technology, rather than the price. The best method to sort the good from the bad is research. Read the White Paper of the project, try question-and-answer communities like Reddit or Quora, or consult a specialist.
4. Following the Crowd
When everyone buys a trendy coin, it’s hard to resist the urge to join the crowd. But you totally should. Many hyped-up coins come under the spotlight because they make unrealistic promises, creating an investment bubble destined to burst.
An aggressive promo campaign can be a sign of a pump-and-dump scheme: the project team inflates the price and sells-out at the peak. Then, the value unexpectedly drops for all the other buyers.
If you are curious about how Pump-and-Dump schemes work, read our detailed guide on the topic.
How to fix it: fight that urge!
Don’t trust the market’s judgment. If something appears too good to be true, it probably is.
If a project’s marketing makes you feel stress, excitement, and anxiety at the same time, it’s probably a scam. Examine the project to confirm your suspicions, read experts’ blogs, and reach out to the crypto community for advice. It will clear the cobwebs.
5. Using Wrong Crypto Exchanges
Here, bad choices cost traders all their money. You may be surprised to learn that crypto exchanges are responsible for most of the scandals in the industry. They hold user funds on online wallets and many skip on propper security. A lot of the exchanges out there are hackable and criminals take advantage.
How to Fix It: trade on most trustworthy platforms. Seriously, be careful here.
Make sure the exchange is safe before signing up. Watch out for the red flags like:
- Unrealistic promises, including abnormally low trading fees;
- Fake (inflated) trading volume;
- History of successful hacker attacks;
- Bad reviews from other users;
- Inefficient communication and bad customer support;
- Lack of transparency: no contact info or legal details, rare social media posts, lack of feedback.
6. Relying On a Single Coin
Keeping all your eggs in one basket is a no-no. Betting all funds on a single coin means entirely depending on its performance. That’s a risky thing to do. The Crypto market is young and unpredictable: sudden price movements are a norm here. No matter how promising the asset looks, it can surprise in a very unpleasant way.
How to Fix It: just buy a bunch of them.
Diversify your portfolio to spread risks across coins. Some will tank, some will rise, your job is to choose more that will rise. The precise portfolio composition should depend on personal risk tolerance. Pay attention to the coin’s utility, market cap, target industry, team, and major investors to assess the potential value.
And don’t forget to read our guide on creating your cryptocurrency portfolio.
Overtrading — or churning — is excessively intensive trading. It’s a common mistake among new traders who haven’t developed a clear strategy. Instead of focusing on strategy, beginners sometimes try to profit by increasing the sheer number of trades. The result is usually unfavorable: trading is not a game of chance. What’s more, lots of little trades burn money on fees and taxes.
How to Fix It: develop a strategy and stick to it.
Start with creating a trading plan that would meet your goals, experience, risk tolerance, and stress-resistance. It will help you control emotions and make analysis-based decisions. Instead of making little trades all over the place, trust your predictions and place larger, more focused orders.
8. Forgetting Basic Security
Ignoring security rules is a common pitfall, even among experienced traders and investors. Cryptocurrencies are decentralized — the single most defining advantage of the technology is also the problem source. Nobody can restore your private keys or cancel a transaction if you make a mistake.
How to Fix It: don’t forget these security rules:
- Keep your private keys secret and never share them with anyone. Take care not to lose them. There is no way to restore a private key. It’s not like your email password.
- If your wallet provider recommends security measures, follow all of them. This includes setting up 2AF (that’s when you receive a code to your phone during login), creating a strong password, and a brand-new email, and keeping your antivirus software up-to-date.
- Use secure wallets. Hardware wallets are the most secure, but not user friendly. Mobile wallets are the next best thing: they are safe enough — unless we are talking about storing millions — and easy to use. Stay clear of hot-wallets. Those are websites that keep your crypto in cloud storage, like cryptocurrency exchanges.